Stocks surged Monday morning, with the Dow up more than 200 points, as investors cheered the government's announced takeover of troubled mortgage firms Fannie Mae and Freddie Mac.
The Dow Jones industrial average (INDU) jumped 225 points, or 2% in the early going, after having surged more than 300 points at the open. The broader Standard & Poor's 500 (SPX) index and the Nasdaq composite (COMP) also rallied.
Stocks ended mixed Friday after a tough session and week, as rallying financial shares vied with a weak labor market report that amplified recession fears.
But the tone was ebullient Monday morning, as investors breathed a sigh of relief about the government rescue plan of Fannie Mae and Freddie Mac.
Fannie and Freddie. The Bush administration said Sunday that it was taking control of the mortgage backers in an attempt to help stabilize the battered housing market and bring down mortgage rates.
Treasury Secretary Henry Paulson said the companies were being put under a government conservatorship. He also said their CEOs were being replaced and that the Treasury Department would put up to $100 billion in each company over time so as to keep them afloat, in exchange for senior preferred stock.
The two government-sponsored firms own or back about half the mortgage debt in the country and have lost billions in the housing market collapse. The plan should lower mortgage rates by lowering Fannie and Freddie's borrowing costs. But analysts are split as to how much the plan will be able to help the battered housing market and sluggish economy. (Full story)
Freddie Mac shares plunged 73%, while Fannie Mae lost 81%. But most financial stocks rallied, including Dow components AIG (AIG, Fortune 500), American Express (AXP, Fortune 500), Bank of America (BAC, Fortune 500), Citigroup (C, Fortune 500) and JP Morgan Chase (JPM, Fortune 500).
Merrill Lynch and Morgan Stanley both jumped more than 5%.
Washington Mutual (WM, Fortune 500) surged 9% after announcing that its CEO has been ousted.
Fuel prices: Oil prices rallied as Hurricane Ike headed toward the Gulf of Mexico and other tropical storms continued to pose threats. Additionally, investors were keeping an eye on the OPEC meeting in Vienna this week, amid bets that the cartel could cut production levels due to the recent slide in prices.
Prices have fallen about $40 a barrel from a record high of $147.20 in July on bets that a sluggish global economy is cutting into demand.
U.S. light crude oil for October delivery gained 87 cents to $107.10 a barrel on the New York Mercantile Exchange, after ending the previous session at a five-month low.
Gas prices declined for an eighth straight day, according to a national survey of credit-card activity.
Company news. Altria Group (MO, Fortune 500) said it would buy UST (UST), the maker of dip products such as Copenhagen and Skoal, for about $10 billion, confirming rumors.
Other markets: In global trade, European markets rallied at midday on the Fannie and Freddie news, while Asian markets ended higher.
In the bond market, Treasury prices slipped, boosting the yield on the benchmark 10-year note to 3.75% from 3.70% late Friday. Prices and yields move in opposite directions.
The dollar gained versus the euro and fell versus the yen.
COMEX gold for December delivery rallied $15.90 to $818.70 an ounce
